Barkan v. Roslyn Union Free School District

APPEAL by the Roslyn Union Free School District and the Board of Education of the Roslyn Union Free School District, as limited by their brief, in a hybrid proceeding pursuant to CPLR article 78 to review a determination of the Roslyn Union Free School District dated August 23, 2005, which denied the request of Michael F. Barkan for a defense and indemnification in an action entitled Roslyn Union Free School District v Barkan, pending in the Supreme Court, Nassau County, under Index No. 05-5946, and to review a determination of the Board of Education of the Roslyn Union Free School District dated September 8, 2005, which denied Barkan's request for a defense in the pending action, and action, inter alia, for a judgment declaring that Barkan is entitled to a defense and indemnification in the pending action, from so much of a judgment of the Supreme Court (F. Dana Winslow, J.), entered October 11, 2006, in Nassau County, as granted that branch of the petition which was to review so much of the determination of the Roslyn Union Free School District dated August 23, 2005, as denied the request of Michael F. Barkan for indemnification, to the extent that it vacated and annulled that portion of the determination, in effect, without prejudice to reapply for indemnification and reimbursement of legal fees after entry of judgment or prior to execution of a stipulation of settlement in the pending action; CROSS APPEAL by Michael F. Barkan from so much of the same judgment as denied that branch of his petition which was to review that portion of the determination of the Roslyn Union Free School District dated August 23, 2005, which denied his request for a defense in the pending action, and the determination of the Board of Education of the Roslyn Union Free School District dated September 8, 2005.

The opinion of the court was delivered by: Skelos, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

The principal issue on this appeal is whether a board of education that has in sum and substance adopted Public Officers Law § 18 is obligated to provide a defense and indemnification to one of its employees against whom the school district, on behalf of the board of education, has commenced a civil action. We hold that if the board of education or the school district, on its behalf, commences a civil action against one of its employees, neither the duty to defend nor the duty to indemnify arises.

Michael F. Barkan was a volunteer member of the Board of Education (hereinafter the Board) of the Roslyn Union Free School District (hereinafter the School District) for 19 years, from July 1985 until June 2004. On or about April 21, 2005, the School District commenced an action (hereinafter the underlying action) against Barkan and other members of the Board, alleging, inter alia, that the Board members failed to properly monitor the School District's finances and detect the theft of millions of dollars by former School District employees during a six-year period from 1998 to 2004. The allegations in the underlying action with respect to Barkan sound in, among other things, negligence and breach of fiduciary duty. By resolution dated March 31, 2005, the Board authorized its special counsel to commence the underlying action.

Barkan sent a notice of the summons and verified complaint in the underlying action to the School District's Interim Superintendent of Schools on April 25, 2005. By letter dated August 23, 2005, the School District advised Barkan that he was not entitled to a defense or indemnification in the underlying action pursuant to Public Officers Law § 18, which the Board previously had adopted in sum and substance by resolution dated August 7, 1986, as reaffirmed by resolution dated July 6, 2004 (see generally Public Officers Law § 18[2]). The provision, as adopted by the Board in Section "VII. LEGAL" of its bylaws provides, in pertinent part: "A. Indemnification of Board of Education Members and District Employees"RESOLVED that, pursuant to Section 18 of the Public Officers Law of the State of New York, the following provisions for the defense and indemnification of officers and employees of the Roslyn Union Free School District are hereby adopted:

"Defense and Indemnification of School District Employees

"2. Defense: "(a) Upon compliance by the employee with the provisions of Paragraph 4 hereof, the Board shall provide for the defense of the employee [defined, in part, as a member of the Board] in any civil action . . . arising out of any alleged act or omission which occurred or is alleged in the complaint to have occurred while the employee was acting within the scope of his public employment or duties. This duty to provide a defense shall not arise where such civil action or proceeding is brought by or on behalf of the Board . . ."3.

Indemnification"(a) The Board shall indemnify and save harmless its employees in the amount of any judgment obtained against such employees in any state or federal court or in the amount of a settlement of a claim for lawful damages . . . The duty to indemnify . . . shall not arise where the injury or damage resulted from intentional wrongdoing or recklessness on the part of the employee" (emphasis added). Thereafter, the School District, by resolution of its Board adopted on September 8, 2005, denied Barkan's request for a defense "based upon the plain language of Public Officers Law, § 18(3)." Barkan commenced this hybrid proceeding pursuant to CPLR article 78 to review the determination of the School District dated August 23, 2005, which denied his request for a defense and indemnification in the underlying action and the determination of the Board dated September 8, 2005, which denied his request for a defense in the underlying action, and action, inter alia, for a judgment declaring that he is entitled to a defense and indemnification in the underlying action. Barkan argued, inter alia, that the denial of a defense and indemnification was arbitrary and capricious because the underlying action was commenced by the School District, not the Board, and thus, he was entitled to a defense and indemnification in accordance with the Board's bylaws.

The Supreme Court rejected Barkan's distinction between the School District and the Board and upheld the determination that Barkan was not entitled to a defense in the underlying action. The court, however, granted that branch of his petition which was to review so much of the School District's determination dated August 23, 2005, as denied his request for indemnification in the underlying action to the extent that it vacated and annulled that portion of the determination and held that he could reapply for indemnification and reimbursement of legal fees after entry of judgment or prior to execution of a stipulation of settlement in the underlying action. The court reasoned that, unlike the provision governing the duty to defend, the only exclusion (other than for acts outside the scope of employment) under the indemnification provision pertained to losses resulting from the intentional wrongdoing or recklessness of the employee. Consequently, the court found that the Board "could not rationally determine that no indemnification was available to Barkan at the time of its August 23, 2005 letter, unless the acts or omissions complained of were outside the scope of employment, which proposition is unsupported by the record to date." Thus, the court concluded that any decision to deny indemnification was premature because a determination ...

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